A Pot Of Oil Essay

2406 words - 10 pages

IntroductionOil this dark thing is one of the world's most valuable sources of energy. It is called "black gold". This essay will discuss the importance of oil to the national economy and world economy. This text will show an in-depth description about how the oil influences the economy. The emphasis in the text is understands the supply and demand theory to explain this questions appropriately. Oils are extremely useful for our daily activities, but extracting and using oils has a damaging effect on the environment and also if we are not careful, oil will soon become rare and very expensive. In this essay, it also will talk about environmental and ethical aspects of use of oil. Besides, the ...view middle of the document...

The biggest oil fields are in the Middle East, Russian and some Africa countries.Is the oil crucial for world economy?The oil business dominates our modern world and we mostly use mineral oil to run our industries and vehicles. Without oil the world economy of today would be brought to a halt. It is therefore more interesting to analyze what will happen if the supply of oil is significant reduced. From 1973 to 1974, the organization of petroleum exporting countries (OPEC) put up the oil price from 3 dollar to 12 dollar per barrel. In 1979, the price rose to over 30 dollar and in the 1980s the price fluctuated but the trend was downward (Sloman, 1997: 72). The OPEC raised the price from p1 to p2. (E.g. see the figure 1) Changes in oil price have been associated with development in the world economy, and are often see as begin for inflation or recession. Because of the significant increase in oil price from 1973 to 1979, the world economy went into recession. According to recent International Energy Agency analyze that high oil price has negative impact on world economy. If there is an increase in the oil price of 10 dollars per barrel, it would reduce the GDP volume of the oil producing countries area in the short term with 0.4%. It would have a temporary increase of 0.5% in inflation of the first year (Kingma and suyker, 2004: 16). A large increase in the import bill of developing counties and the current account deficit has a significant increasing. They have to suspend payment to World Bank or some developed counties who load money to them. Therefore oil price suddenly increased is not good things to economy, which threatened not only the debtor countries, but also world economy and world banking system. (Sloman, 2001: 473)Figure 1What determine the price of oil?Supply and demand is the key thing to determine the price of oil. However, there are lots of things could influence the supply and demand. OPEC thinks that the oil price is to low because there is too much surplus oil in the market. So OPEC member limited their output by agreed amount. Accord to the theory of supply and demand, the price of oil raised 3 dollar to 30 dollar from 1973 to 1979. (Sloman, 1997: 72) This reduction in output only need to relatively small part because the short-run demand for oil was highly price inelastic. Because most uses there are no substituted in the short-run. Based on elasticties found, a sudden change in supply or demand, such as unexpected increase in world demand or an unexpected decrease in world supply, will in the short term lead to a price increase of around 15 per cent (Kingma and suyker, 2004: 10). This theory shows that a small variation in supply or demand has large impact on price of oil in a short-run.From the figure 2, we can see that 40 per cent oil was produced in OPEC; however, the rest of 60 per cent oil was produced in the other countries (Kingma and suyker, 2004: 2). Accord to the figure 2, not only the OPEC determined the oil...

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